The Seven Pillars of Financial Success, Pillar 3: Beware of Debt

For those of you new to Free Money Finance, I post on The Bible and Money every Sunday. Here's why.

The Bible discusses the keys to personal finance success quite plainly. If you read the book of Proverbs in particular, you'll see that the path to financial success isn't that difficult or extensive. In fact, the wisdom to be prosperous can be found in a few simple steps.

Over the next few weeks, I'll be sharing what I consider to be the seven pillars of financial success from the Bible.  I picked up on the number seven from Proverbs 9:1 where it says:

Wisdom has built her house; she has hewn out its seven pillars.

Today we'll be discussing Pillar #3: Beware of Debt.

In Proverbs 22:7, the Bible says:

The rich rule over the poor, and the borrower is servant to the lender.

And that's about the best thing the Bible says about debt! In fact, the Bible discourages the use of debt EVERY TIME it mentions the subject.

I've covered what the Bible says about debt previous here on FMF. The summary: stay out of debt -- and if you're in it, try to get out as soon as possible.

A few more thoughts on this topic from me:

1. Being deep in debt is one of the worst money moves anyone can make. It can cost you hundreds of thousands of dollars over the course of your lifetime and thus be a very large drag on your net worth.

2. Unfortunately, there's a HUGE difference between the debt Americans "should" have (though I'd say these numbers are high) and what they actually have. 

3. If you're in debt and want to get out, see my seven steps to get out of debt (and here are some follow-up tips to remain debt free once you get there.)

4. Usually the last debt to fall is a person's mortgage. Check out this link if you want some thoughts on how to be mortgage free in five to seven years. 

5. I know someone's going to say (or be tempted to say) something like: "Yeah, but I can make more with the money by investing it than by paying off debt." Really? Can you really? My experience shows me that a very small percentage of people have the discipline, wisdom, insight, patience and skill to actually make this work. Sure, you may be one of them. Then again, you may be fooling yourself.

Do you agree or disagree?

Come back next week as I discuss Pillar #4!

Comments

[Learn Financial Education]

Agree! Being buried in debt is really hard. You need to go out of it ASAP.

[Matt]

Agree!! I have bought the past two cars CASH and no financing. The only debt is the house and I am working hard at eliminating it. This will allow me 10 years of house payments to save before retiring.

I never believed those "finacial swindlers" saying don't pay down your debt invest it. Look at where that "thinking" has gotten the USA in.

[DIY Investor]

Mostly agree. Consider going into debt if it will increase your productivity. For example, debt makes sense to buy a house, get an education (although more students should start at the local community college where it is much cheaper and classes are considerably smaller), or even buy a car.
Where it obviously doesn't make sense is when the credit card is whipped out to buy on impulse those things that can only be paid for with the minimum payment. In these instances spending is an emotional/psychological issue and is obviously problematic.

[Cesar]

While being debt free as an individual is absolutely right isn't it true that the US economy cannot survive without debt? Just a thought.

[Squirrelers]

Have to agree, it's really hard to see how anyone could disagree. Best to avoid liabilities, be debt-free, and keep an income minus expense gap to build net worth free and clear.

To pick up on DIY's comments, I can see going into debt if it's truly an investment for a college or graduate school education. The idea there would be that the NPV of that investment will be highly positive. Even then, some are better values than others, and it requires taking care to accurately assess the benefits across a lifetime. Not just with starting salaries, but with prestige, networks, etc.

As far as a house being worth being in debt - not sure I always agree. We do need a place to live, but taking out a mortgage for a McMansion, or for a primary residence that's purchased with hopes of appeciation, doesn't make sense. Live within your means, and view your house as a cost center, because that's what it is besides being a home.

[Jerry Cowles]

The Registered Investment Advisor touted by Baron's as being #1 in the nation strongly recommends having the maximum mortgage possible at ANY age and investing what would otherwise be, from his general perspective, wasted or underutilized capital. At 58 y.o I have the remnant of a mortgage which I have accelerated. Even with greatly depressed home values in the Tampa Bay market, I still own more than the bank. I will personally continue to pay the mortgage as quickly as possible, even though some view the money as poorly invested. In the end, I will sleep well and still have money to invest and money to spend. Very good advice, in MHO, from this blog.

[Khaleef @ KNS Financial]

I would add a mortgage to the list of "debt to beware of" in just about every case. When using debt, you are still paying WAY more for the house than you agreed to. Many people fool themselves into thinking that they will be able to pay it off early, or be able to sale it for a "profit", but that is rarely the case. I think it's a bad thing how this society has quickly embraced debt in these cases. I don't see too many people conducting an honest analysis of borrowing to obtain a house or education. Most people will say I purchased it for 300k and sold it for 350k so I made 50k - they never consider the 100k of interest they paid out (nor the PMI for not having 20% to put down).

I also must say that a nation living within their means is JUST AS POSSIBLE as a family doing the same. There have been MANY years in the last century when our economy had a surplus (more revenue than expenditures).

Good article.

[Elizabeth]

Totally agree with the article and also not so sure about mortgage debt either. It's still debt and most people I know have either had to sell, lost their homes or are simply in over their heads and can't live otherwise. They are simply working to maintain and keep their home(s).